Don’t Use KPIs in Employee Performance Appraisal

May 3, 2011 by Stacey Barr

Our organisational culture has so strongly tied KPIs to employee performance that, despite no proof it works and overwhelming proof that it doesn’t work, few are willing to stop using KPIs in performance appraisals.

Here, when I say KPI, I mean performance measures that monitor how well people are performing in their roles. In performance appraisals, these KPIs or measures are used by managers to help determine if a staff member is up to scratch, deserving of a reward (financial or non) or in need of being “performance managed” (or fired).

The problems with using KPIs or measures in performance appraisals are usually the same for the majority of organisations. It encourages people to:

fudge the figures so no-one gets an accurate or objective view of true performance

compete rather than collaborating with colleagues for fear of being the one to miss a personal target for the greater good

focus on doing tasks more productively even if they don’t produce meaningful results

count easy widgets versus measuring meaningful results.

You’ve seen this happen, haven’t you?

Employee performance appraisals that use KPIs have ignored human nature.

At the root of those problems listed above, is human nature. Particularly our self-esteem, feeling valued and accepted by others, feeling a part of something bigger than ourselves, wanting to make a real difference in the world. But when we use measures to evaluate and judge each other’s performance, we push against these basic human needs.

Focusing KPIs on individual performance ignores systems thinking.

In systems thinking, we learn that the whole is more than the sum of the parts. If you total up the performance of all the people, you *don’t* get a value that equals the performance of the organisation. People aren’t the organisation’s performance, they create the organisation’s performance through their decisions and actions and, most importantly, their collaboration. When we measure individual’s performance, we encourage them to focus on themselves, not the whole.

When people have KPIs to hit, everyone ignores collaboration.

You don’t need to measure people against each other. You don’t need to know who is the best performer or the worst. You don’t need to worry about the very few poor performers. You’ll give organisational performance the biggest boost if you turn your attentions to giving everyone the best opportunities to work together to make a valuable difference. Everything else is subordinate to that.

The solution is not better KPIs for performance appraisals.

The whole idea of measuring people, in my humble opinion, is undignifying. It’s a form of judgement that evokes self-preservation in people rather than self-actualisation. What’s more, it fails to produce better organisational performance, because the problems I mentioned before actually erode organisational performance in a downward spiral.

So what can we do instead?

As the self-titled Performance Measure Specialist, you can guess I’m not suggesting that we don’t need KPIs or performance measures. It’s how we use them in relation to performance appraisal that needs to change.

Instead of choosing measures to judge how people have performed, come performance appraisal time, help people choose measures of the results they collaborate to produce, and to use those measures themselves as ongoing and regular feedback – between performance appraisals – to adjust and improve how those results are produced. Performance appraisals then become about how the organisation can help people self-actualise, to help them grow further into who they want to be.

And if I have failed to shift your opinions about using KPIs in performance appraisals, and you feel certain that it’s working well in your organisation, I implore you to take a closer look.
TAKE ACTION:
Is your performance appraisal system the elephant in the room, taking up a LOT of space, doing more damage than good, and is so obvious that it’s easy to ignore? Take a closer look and see if you can’t find a way for performance measures to be used more meaningfully in managing people’s performance – as tools to give them the best chance to perform well, not as a means to judge their performance.

This is a bit like jello on the wall. First you say no, then you start to say yes… but then don’t measure KPIs of individuals participating in the collective glory of corporate success.

How on earth do you assign cash and stock awards to individuals when half of their award is based on personal performance (with the other half based upon corporate performance)?

You really seem to lack a solution from which I would exclude self-actualization as being unmeasurable by an independent outside third party.
Perhaps this sort of ‘non-valuation’ would fly in sectors that, shall we say, are not so concerned about productivity and have no shareholders to whom they must answer.

It is one of the few times that I will disagree with you Stacey. And I guess that the base of my disagreement is that we cannot put all KPIs in one box and not all levels of employees in one box. As you know far better than me, there are e.g. “conclusive” KPIs (measure the outcome of an activity or process), KPIs that drill down to the possible cause of a problem etc. And measuring the performance of a manager is far different from doing the same for an employee.

I have no hesitance to use KPIs that measure the overall success of an activity when I have to measure the performance of a manager or supervisor. The manager is by definition tied to the acheivement of the objectives of his area of responsibility. Well thought KPIs will monitor both the overall success of the activity and at the same time the success of the person who was in the first place responsible to bring this result.
Will managers try to gently manipulate the numbers so that they produce a better picture? For sure, but this where a well thought system of KPI’s and an effective internal audit process come into the picture.
Is it necessary to bring your “clients” in the game (by asking them to select the measures they will use for measurement)? For sure, but this is not something I consider necessary in order to allow me to use KPIs for the evaluation of individuals performance. I consider it a fundamental step for ensuring success for the performance management excercise of the organization.

Not to mention that if you intent to use KPIs for individuals performance evaluation, then the PM project gains an extra supporter coming from the HR area (they are always looking for an objective way to measure performance and reduce complaints, distress etc. close to year end)

You are so right. The HR profession has much to answer for but a primary sin is to attribute the failure of the team to any individual member. Performance appraisal systems are too frequently a weapon used by HR people to exercise their power over everyone else.

A KPI belongs to the team, the function the business, NEVER to any individual.
Only the CEO is accountable for the high level KPIs. The lower level KPIs may be the responsibility on a manager but they all depend on team performance.

I cannot say it too often; to make an individual responsible for the achievement of any KPI target is to misunderstand the nature and purpose of a KPI.

Hal Geneen put is well over 30 years ago when he said that KPIs are indicators of the health of the organization. No individual can carry sole responsibility for organizational health any more than the person suffering from terminal heart disease is to be blamed for dying.

There is a cultural imperative here, and some cultures value the individual above all else while others see the group or collective as being important. Are we not obsessed with the need to measure people so we can identify the ‘best performer’ give them the title of Talent and pay them more and reward them with stock options. However, the team makes the achievements possible not one individual, and great leaders need to sustain the rsults and the people’s efforts,
So how do you measure performance – the way bankers mess the global economy but still get fantastic packages and stock options? Did they perform, of course their bank did not fail, so it was a coupe agisnt the competition! Major success. What about the analysist the coffee makers, the admistrators etc did they perform.
Mmeasures have to be bothindividual, so I am not saying they should not be measured, but what we measure and why we do it is important, and what do we want them to do and deliver is equally necessary. Then we need to measure the teams output and the divisions’ or groups’ and look at this and factor this in. Most businesses do this mechanistically and by the numbers, but what of the qualitative aspects of trust and relationhsip with suppliers and customers and colleagues that make working easy and sustainable and retain your talent along with all the ‘B’ players?
If we don’t do this then we want everyone to be the same extrovert, aggressive, selfish, focused on my result/s etc, no one to build the relationships, the values and deep trust that cmes from time helping each other irrespective of my results!
A bit long but culture also plays a role and in some parts of the world this makes individual measures very undignifying and if we wish to change this then we need daily, weekly feedback and reviews of results, notthe 1-2 or even quarterly results reviews for people.

In the context that you put it yes I agree. To use KPI there are certain preconditions. The system you use has to have some dependence and independence from its users. Here we can speak of co-creation and record keeping. The appraisal is just a culmination of prior discussion between the users. KPI should not only be limited to hard core issues i.e. quatitative but qualitative as well (soft issues). Performance should reflect individual vs standards, individual vs own team, individual vs firms and lastly individual vs industry.

Appraisal personnel is always a bit political. A bit of personal involvement should be there otherwise the process becomes inhuman.

So I agree with Marcus that its a touch job and KPI’s could help to rationalize it a bit. But Stacey is right too. If you totally rely on KPI’s the employee starts acting political and you end up with rewarding people you don’t want to reward.

So, I stuck in the middle and try to make the process a bit objective with smart targets and at the same time I make it a personal thing. My opinion on how a person does his work and how he cooperates with colleagues is part of the appraisal.

And be aware: if the outcome of the appraisal process becomes predictable and smart measurable for the employee you as a manager lose control over the employee. Your rules and engagements dictate behavior and you downgraded yourself to an executive of rules instead of an executive of people and moving)targets.

Marcus – I hear your frustration. I just don’t EVER see measuring people actually result in productivity improvement for the company. Perhaps it does work out there somewhere, but I believe only in sharing my experiences and not theory. In my experience, measuring individual performance focuses people on their plot and their rewards and not on teamwork or the big picture. But that’s just my experience. If people insist on doing it and ask for my help, then I’m happy to share the PuMP techniques for designing good measures with them, because those techniques are pretty much universal. I hope you find what you’re looking for Marcus!

George – thanks for your comment too. I guess I’d refer you to my comment above for Marcus. If you know of anyone who does fab work in the area of measuring employees/managers (people) and have wonderful examples of how it works well to support corporate performance, I’m all ears (or eyes)!!!

Michael – Thanks for sharing the info about Hal Geneen. I didn’t know about that. But from the field of systems thinking, there are plenty of similar findings about how measuring individuals can sub-optimise the whole system (ie the organisation).

Jose – I think you capture the tension of this argument really well! It’s such a hard one to unravel, and maybe it’s culture too – of the organisation in particular – that either makes measuring individuals work well, or not.